A former team leader of Terra reportedly testified against Do Kwon, saying he knew that the project was legally problematic.

The 14th Criminal Division of the Seoul Southern District Court engaged the first witness on Feb. 5 in a case against Do Kwon.

According to a report from the daily newspaper Chosun, the South Korean court heard testimony from a witness known only as “Lee,” which local media report was a former leader of the Terra development team, who testified against Terra founder Do Kwon and Terraform Labs co-founder Shin Hyun-seung.

Lee acknowledged during the testimony that he was aware of the legal challenges facing Terra, citing discussions with Do Kwon as the source of his realization about regulatory obstacles. Lee’s testimony also highlighted the operational framework of Terra, which aimed to establish LUNA as a functioning currency through the “ChaiPay” payment system. The model suggested potential profits based on the expected increase in the value of the LUNA token.

However, Shin’s defense team challenged Lee’s testimony, disputing the accuracy of his statements. They contested the assertion that Kwon and Shin were aware of the impossibility of Terra payments, suggesting discrepancies between the witness’s claims and the facts presented.

The prosecution alleges a conspiracy between Shin, Terra team members, Do Kwon, and others to unlawfully promote the project from July 2018 to May 2022, seeking profits through deceptive practices. Eight individuals affiliated with Terra, including Shin, are under suspicion of violating South Korea’s Capital Markets Act.

In the meantime, Singapore-based Terraform Labs filed for bankruptcy protection to pursue a “do-or-die” appeal against the U.S. Securities and Exchange Commission (SEC) after a U.S. court ruled that Terraform Labs and Do Kwon violated U.S. law by failing to register two cryptocurrencies: LUNA and MIR, which the SEC deemed as securities.